Credit Card Processing in High-Risk Industries

What is a high-risk merchant account in credit card processing?

High-risk merchant accounts are those held by businesses with an extensive history of refunds and chargebacks. If your business poses a higher risk of liability to financial institutions, you’ll pay higher fees for services and you may also be subject to a rolling reserve. The rolling reserve protects the bank in case of excessive chargebacks and refund incidences. 

Companies with pristine credit histories that sell products and services with low chargeback and refund rates often qualify for standard merchant accounts.

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Which industries are considered high risk? 

Controversial industries, including weapons retailers and tobacco, are subject to tight regulation and constant lawsuits, resulting in large legal fees and a higher chance of business failure. Other industries, such as travel, are seasonal in nature and heavily dependent on consumer spending, which often means that revenue can be inconsistent. Businesses considered high risk by most lenders include the following industries:

• Weapons manufacturers and retailers
• Tobacco, alcohol and cannabis 
• Gambling and sports betting
• Adult entertainment and content 
• Travel agencies and tour operators
• Health supplements and pharmacies 
• Forex, payday lending and check cashing services
• Debt collectors and auctioneers
• Dating services
• Subscription-based businesses

What makes a business or industry high risk?

To mitigate the risks in credit card processing, companies have developed classifications for high-risk merchants. Here’s an overview of what may land you in the high-risk credit card processing category as opposed to the low-risk one:

While the above table serves as a guide, whether your business is categorized as high risk or low risk is ultimately at the discretion of the credit card processing company. 

If you are a merchant who conducts business in a high-risk industry, there are ways to mitigate the cost of running such a business:

• Choose a credit card processing company that will only charge you for transactions conducted on your website or app.
• Apply for a high-risk merchant account with a credit card processor that has worked with other businesses in your industry.

Pros and cons of high-risk merchant accounts

If you’re a high-risk merchant, the biggest challenge you’ll face is higher fees and rates. Shop around to find the credit card processor that works best for you and remember that there are advantages of working in a high-risk industry.

Pros of working in a high-risk industry

• Opportunity to expand your market: As a high-risk merchant, you can conduct business with clients in high-risk countries, which means you’ll reach more customers than low-risk merchants can.
• High profit margins: In addition to a larger market, you have the option to sell a broader range of products than low-risk merchants do, which means more money for your business.
• Chargeback protection: When a low-risk merchant exceeds the designated chargeback threshold, the credit card processor may terminate their account. In the case of a high-risk account, the credit card processor will likely only pause the merchant’s credit card transactions.

Cons of working in a high-risk industry

• Higher fees and rates: Because your business presents a greater risk to credit card processors, you will need to pay higher processing rates and fees. 
• Greater chance of being impacted by regulation: Typically, high-risk industries are highly regulated or at least are highly scrutinized. For example, cannabis businesses would have to move or go out of business if marijuana was outlawed in their state.
• More frequent chargebacks: Customers who regret their purchase decisions in industries such as online gambling or adult entertainment are more likely to dispute charges, resulting in high fees.
• More fraudulent activity: Businesses with high-priced products are subject to fraud, in which scammers use stolen credit cards to purchase goods. Eventually, these sales will get reversed when discovered by the legitimate cardholder.
• More stress: The uncertainties of working in a high-risk industry and revenue interruptions can be stressful for owners. 

Many merchants aim to stay in the low-risk category. But don’t let the possibility of being considered a high-risk business stop you from entering an industry that could bring in a profit large enough to be worth the extra rules.

What are the best high-risk credit card processing providers?

Here’s a look at some of the best credit card processors.

ProMerchant

In our ProMerchant review, we appreciated the company’s embrace of high-risk businesses and how they provide credit card fraud mitigation tools to protect themselves and their merchants. ProMerchant gives you developer tools to set up an online store including shopping cart functionality, a “buy now” button and integration with Authorize.net’s virtual terminal. 

You can choose the pricing model that works for you: either interchange-plus pricing with a monthly fee or flat rate processing with no monthly fee. There is no long-term contract and you can cancel anytime. All ProMerchant-compatible hardware and software is Payment Card Industry (PCI)-compliant, so that is one less thing to worry about.

Helcim

Our review of Helcim found that it’s transparent with its pricing, listing complete rates and fees online. This full-service account provider offers interchange-plus pricing to all its merchants and its retail rates are lower than average. It also has a rate-lock guarantee, which means it promises not to raise its markup for the life of your account.

Instead of charging a handful of standard fees like most full-service processors, Helcim charges a single monthly fee, which includes statements, customer service, PCI compliance and access to Helcim Commerce, the company’s all-in-one payment platform. Like many other top processors, Helcim provides its services on a month-to-month basis, so there are no early termination fees if you close your account.

Square

Our Square review revealed that the only charge for its basic processing service is a flat rate for each transaction. There are no monthly, gateway, setup, annual, PCI compliance or early termination fees. It doesn’t even have a chargeback fee, which is unusual. Square’s lack of fees makes it an affordable option for small businesses that don’t process enough transactions to justify paying regular account fees.

Square also has the best mobile credit card processing app. You can not only accept payments on it but also use Square’s full-featured point-of-sale (POS) software to track inventory, manage customer information and run sales reports. The app is free to use ― all you pay for is processing. It works on both Apple and Android phones and tablets. You can add more business features by subscribing to paid services like payroll and email marketing or by integrating with third-party applications you already use, such as accounting software.

Merchant One

Our Merchant One review highlights this credit card processor’s flexible pricing; they offer custom pricing and packages for each business, according to its needs. Merchant One’s software interface is intuitive and easy to use and includes a virtual terminal and robust reporting. The software integrates with over 175 online shopping carts and includes a variety of ecommerce security tools, making ecommerce setup seamless and safe. 

Although Merchant One does not manufacture its own credit card readers and other payment processing hardware, it does allow its merchants to accept a variety of payment types including digital wallets and near-field communications payments. PCI compliance is covered in your monthly fee and there is also an annual fee plus processing fees. 

National Processing

In our National Processing review, we found that besides offering low interchange plus transaction rates, they also lock in your rate so that you don’t have to worry it will increase down the road. The rate you get depends on your industry. Although there is a small monthly fee, there is no monthly processing minimum or lengthy contract. You can accept credit, debit and automated clearing house payments from customers online and in person.

National Processing does not make its own payment processing hardware but is compatible with third-party equipment, such as Dejavoo and Clover. National Processing’s customer service is excellent and every merchant gets a dedicated account manager to answer questions and resolve issues. They also provide 24/7 tech support and live chat.

Stax

In our Stax review, we discovered that it uses the interchange-plus pricing model but doesn’t charge a markup percentage. It only adds a per-transaction fee to the published interchange fee ― the rate set by the credit card companies (Visa, Mastercard, Discover and American Express) that everyone pays.

For account fees, it charges a single monthly membership or subscription fee. There are no separate fees for statements, PCI compliance, customer support or account maintenance. Though the monthly membership fee is higher than what some of its competitors charge, its processing limits are less restrictive. The company notes that businesses need to process at least $7,000 per month for this to be a cost-effective processing solution. Small businesses that process a high volume of transactions each month will see the most savings on their overall costs.

North American Bancard

In our review of North American Bancard, we found that it makes approval and setup quick and easy. The application process is straightforward and approvals come within as little as a day. The company also provides free equipment to merchants once they sign a contract so you can start accepting credit cards right away. 

North American Bancard’s Payments Hub software includes inventory management, a feature that is usually offered for an additional fee at other processors. Its reporting is impressive, showing business owners not only the usual data on sales and transaction size but also granular data such as viewing employee performance in regard to sales, tips and other criteria. A unique feature is its cash discounting program that adjusts the price automatically to reflect the payment method, encouraging customers to pay in cash and keep credit card processing fees in check.

What is credit card processing?

Credit card processing is the way by which businesses accept debit and credit card payments from customers. Generally, this involves the use of both POS hardware and software in conjunction with a credit card processing company’s payment networks. Credit card processing service providers often charge a certain percentage of each sale as well as a per-transaction fee, depending on the type of transaction.

Many processors provide the option to set up payment gateways for accepting debit and credit cards online. However, accepting payments when the physical credit card is not present, either through a gateway or over the phone, often incurs a higher rate due to the increased risk.

Risk, in general, is a key consideration in the credit card processing industry. In some cases, certain businesses or entire industries are deemed high risk, which carries higher rates, more fees and more terms and conditions than the credit card processor’s other clients.

Jennifer Dublino and Adam Uzialko contributed to this article.